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The changes were made so as not to increase premium rates, the company said.

Auckland funeral director Nick Bakulich, of Greyson Funeral Services, has worked in the sector for almost 30 years and said more and more people were taking out such policies in a bid to help loved ones they would one day leave behind.

"They bring a sense of peace of mind. A lot of people [who get funeral insurance allowances or policies] are being mindful of the cost and who bears it when they're gone.

"Sometimes we've got to steer people in the right direction and say: 'You can't afford it'.''

At the Haven Falls funeral home - which has branches in West Auckland, Whāngārei and Wellington - funeral packages start from $3990 plus GST.

That package included the uplifting of the body, the casket, dressing, a death certificate, prayer service and documentation.

A funeral director based at its Henderson branch, who asked not to be named, said they often worked closely with families, many of them Pasifika and Māori, to come up with a cost that suited their circumstances.

He said a lot of people tended to underestimate the cost of a funeral and staff also helped lower-income families to apply for the funeral grant provided by Work and Income NZ - a total of $2058.52.

The president of the Funeral Directors Association of NZ, Gary Taylor, told the Herald this week that the costs of funerals were going up.

Burial plots in Auckland sometimes reached up to $7000. Cremation options were a lot cheaper - ranging from between $500 to $1000 - but was not an option for some cultures.

Speaking about Southern Cross's move to remove the funeral allowance, he said: "I imagine it will impact a lot of people.''